U.S. Business Activity Grows for First Time in Three Months

By Lorraine Woellert -
Nov 30, 2012

Business activity in the U.S.
expanded in November for the first time in three months, showing
superstorm Sandy is less damaging to the economy nationally.

The MNI Chicago Report’s business barometer rose to 50.4
from 49.9 in October. A reading of 50 is the dividing line
between expansion and contraction. The report’s index of new
orders, considered a leading indicator, dropped to the lowest
point in more than three years, indicating the gains may not be
sustained.

“The new orders number is concerning,” said Jacob Oubina,
senior economist at RBC Capital Markets LLC in New York, who
correctly forecast the gain in the Chicago index. “You’ve lost
one of the main pillars of economic strength in an environment
where the economy is extraordinarily soft.”

The total reading contrasts with earlier reports from the
Philadelphia and New York region that showed the largest
Atlantic storm ever to hit the U.S. had halted manufacturing in
that part of the country. At the same time, the prospect that
lawmakers will be unable to avert $607 billion in automatic tax
increases and spending cuts at the beginning of 2013 may prevent
the economy from strengthening.

The median estimate of 53 economists surveyed by Bloomberg
forecast the Chicago gauge would rise to 50.5. Projections
ranged from 48 to 53.

The MNI Chicago Report’s gauge of new orders fell to 45.3,
the weakest reading since the recession ended in June 2009, from
50.6 in October. A measure of employment increased to 55.2 from
50.3. Production accelerated, with the index climbing to 54.7
from 51.8, today’s report showed.

Consumer Spending

Consumer spending and business investment have slowed as
the looming fiscal cliff hinders economic growth at the end of
2012.

Another report today showed consumer spending unexpectedly
declined in October and incomes stagnated in October as Sandy
kept some in the Northeast from getting to work or from shopping
at malls and car dealerships. Purchases decreased 0.2 percent,
the weakest reading since May, after a 0.8 percent gain in the
prior month, according to Commerce Department data.

Stocks were little changed, with the Standard & Poor’s 500
Index poised for its second straight weekly gain, as lawmakers
negotiate on the federal budget. The 500 Index rose less than
0.1 percent to 1,416.91 at 10:27 a.m. in New York.

The economy in the U.S. expanded more than previously
estimated in the third quarter as a narrower trade deficit and
accumulating inventory more than offset a greater-than-projected
slowdown in consumer spending. Gross domestic product grew at a
2.7 percent annual rate, the Commerce Department reported
yesterday, while household purchases climbed at a 1.4 percent
rate, the least in more than a year.

Sandy’s Impact

Freight company CSX Corp. (CSX), in Norfolk, Virginia, has
furloughed hundreds of workers and put about 400 locomotives out
of service in response to soft demand, due in part to the
disruptions caused by Sandy.

“Our international business is continuing to be very
strong, but on the domestic side we have seen significant drop
off here in the fourth quarter in terms of our volumes,” Chief
Financial Officer Fredrik Eliasson said at a Nov. 28 conference.
“Clearly part of that is because of the impact from hurricane
Sandy.”

At Microchip Technology Inc. (MCHP), based in Chandler, Arizona,
Chief Operating Officer Ganesh Moorthy said it’s too soon to
tell whether the business environment has reached a bottom as
global demand weakens.

Global Slowdown

“We have Europe in a recession and we’re not quite sure
when that all turns around,” Moorthy said at a Nov. 28
conference. “We have some of the growing economies China, India
that all have their own issues as well,” he said. “So we were
not ready and we are not ready to call a bottom.”

Economists monitor the Chicago index and other regional
manufacturing reports for an early reading on the national
outlook. The Chicago group includes manufacturers and service
providers with operations in the U.S. and abroad, making the
gauge a measure of overall growth.

The Federal Reserve Bank of New York’s general economic
index showed manufacturing in the area covering New York,
northern New Jersey and southern Connecticut contracted in
November for a fourth consecutive month. The Fed Bank of
Philadelphia’s index dropped to a four-month low.

The Institute for Supply Management’s factory index for
November, which is due Monday, likely showed expansion for the
third month, according to the median forecast of economists
surveyed by Bloomberg.